This year’s gains by U.K. real estate companies are “unsustainable” because of a deteriorating retail industry, Societe Generale said.
The shares are 13 percent more expensive than the level indicated by Societe Generale’s valuation models, analysts at the firm including Marc Mozzi said in a report today.
Hammerson Plc (HMSO), Britain’s third-largest real-estate company by market value, and Capital Shopping Centres Group Plc (CSCG) are the most vulnerable because more than 10 percent of their store leases are due to expire this year, the analysts said.
“The rapid rise in tenant failures will test the claims all U.K. major REITs make to have ‘prime portfolios’ and the question now is how viable are their leaseholders,” the analysts said. “Short of a genuine economic recovery, the U.K. real estate sector’s strong performance looks unsustainable.”
The FTSE 350 Real Estate Investment Trust Index of 11 stocks has gained 18 percent this year, while the benchmark FTSE 100 Index has risen less than 2 percent. Consumer spending will grow 0.1 percent this year and 1.3 percent next year, PricewaterhouseCoopers LLP said July 12. That may not help traditional retailers because of “relentless internet competition and a retrenchment among U.K. shoppers,” the Societe Generale analysts said.
“We have consistently pointed out that our operating performance outperformed the retail averages,” Morgan Bone, a spokesman for Hammerson, said by telephone. Hammerson will report first-half results on July 23.
Michael Sandler, a spokesman for Capital Shopping Centres, declined to comment. The company is scheduled to report its earnings on July 26.
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